Correlation Between All Asset and Absolute Capital
Can any of the company-specific risk be diversified away by investing in both All Asset and Absolute Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining All Asset and Absolute Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between All Asset Fund and Absolute Capital Defender, you can compare the effects of market volatilities on All Asset and Absolute Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in All Asset with a short position of Absolute Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of All Asset and Absolute Capital.
Diversification Opportunities for All Asset and Absolute Capital
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between All and Absolute is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding All Asset Fund and Absolute Capital Defender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Defender and All Asset is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on All Asset Fund are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Defender has no effect on the direction of All Asset i.e., All Asset and Absolute Capital go up and down completely randomly.
Pair Corralation between All Asset and Absolute Capital
Assuming the 90 days horizon All Asset is expected to generate 2.21 times less return on investment than Absolute Capital. But when comparing it to its historical volatility, All Asset Fund is 1.28 times less risky than Absolute Capital. It trades about 0.21 of its potential returns per unit of risk. Absolute Capital Defender is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 1,140 in Absolute Capital Defender on September 4, 2024 and sell it today you would earn a total of 51.00 from holding Absolute Capital Defender or generate 4.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
All Asset Fund vs. Absolute Capital Defender
Performance |
| Timeline |
| All Asset Fund |
| Absolute Capital Defender |
All Asset and Absolute Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with All Asset and Absolute Capital
The main advantage of trading using opposite All Asset and Absolute Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if All Asset position performs unexpectedly, Absolute Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Absolute Capital will offset losses from the drop in Absolute Capital's long position.| All Asset vs. Pimco Rae Worldwide | All Asset vs. Pimco Rae Worldwide | All Asset vs. Pimco Rae Worldwide | All Asset vs. Pimco Rae Worldwide |
| Absolute Capital vs. Absolute Capital Asset | Absolute Capital vs. Absolute Capital Asset | Absolute Capital vs. Absolute Capital Asset | Absolute Capital vs. Absolute Capital Defender |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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